1) Disuse Inventory
It means the inventory asset having no value due to the damage or quality defect. The valuation loss must be recognized when the asset is found to be disuse inventory at the time of monthly closing. If physical damage or quality defect occurs during routine production or sales activities, it should be expressed as the devaluation account of the inventory asset and added to the cost of sales. In the case of extraordinary occurrence like business termination, fire or natural disaster, it should be appropriated as Other Operating Expenses